Broker's Notes: Sterling hits a high against ailing euro

Sterling rose to two-month highs versus an ailing euro on Tuesday as European sovereign risk concerns undermined the single currency, which in turn hampered risk sentiment and supported the dollar against the pound. The euro skidded to 10-week lows against the dollar after a rescue package for Ireland failed to dampen speculation other bailouts will be needed in the euro zone. Versus the dollar sterling slipped to a two-month low of $1.5508 before steadying around $1.5530. The greenback was broadly supported on safe-haven demand stemming from worries over the euro zone, trading at two-month highs versus a currency basket. Technical analysts said the 61.8 percent retracement of sterling's May to November rally was acting as support, but further losses were still likely.

Rupee
The Indian rupee seesawed on Tuesday before closing marginally stronger as positive sentiment due to a better-than-hoped economic expansion in the September quarter was offset by sharp losses in the euro. India's economy grew more than expected in the second quarter, boosted by farm output and manufacturing, putting pressure on the central bank to tighten monetary policy although a rate increase next month still looks unlikely. The partially convertible rupee closed at 45.88/89 per dollar, off its low of 46.12, its weakest since Sept. 17, and 0.1 percent above Monday's close of 45.93/94. Shares too recouped early losses and climbed 0.6 percent, supported by better-than-expected economic growth and firm European markets.

Gold
Gold firmed up on Tuesday, aided by physical buying, while investors continued to watch the progress in euro zone's debt problem and tensions in the Korean peninsula for trading cues. Uncertainties about how the euro zone would stabilise its fiscal conditions continued to bother investors, even after an agreement over the weekend on a $115-billion bailout package for debt laden Ireland. Gold might benefit from safe-haven buying, if situations in Europe and Korea peninsula deteriorated. But a stronger dollar, another beneficiary of political and economic uncertainties, could weigh on gold prices.

Euro
The euro won some respite in Asian trade on Tuesday but few traders think the worst is over for the single currency after a rescue package for Ireland failed to help restore investor confidence in euro zone debt. Markets expect more selling in the euro after Italian and Spanish 10-year bond yields jumped by more than 20 basis points on Monday, their biggest daily rise in more than a decade -- highlighting the lack of confidence in the 85-billion-euro deal to help contain Ireland's debt crisis. The euro has managed to scrape small gains for now, however, helped by short-term oversold technical signs. The euro ticked up to $1.3140 up just 0.1 percent from late U.S. levels, but about 0.6 percent above a 10-week low of $1.3064 hit on Monday. It was dangling around the crucial 200-day moving average at $1.3128.

Oil
Oil fell towards $85 on Tuesday, consolidating as the dollar hit a 10-week high and the euro fell on worries over the European debt crisis and concerns China may raise interest rates and cap energy demand growth. Traders were also looking for more evidence that U.S. oil inventories would drain with a surge in demand for heating as wintry weather swept across Europe and the United States. Oil prices climbed 2.4 percent on Monday, led by futures for heating fuels such as gas oil, as cold weather raised expectations of higher fuel consumption on both sides of the Atlantic. An industry report on inventories from the American Petroleum Institutes (API) is due on Tuesday at 2130 GMT, followed by government statistics from the Energy Information Administration on Wednesday.

Source: Richcomm Global Services DMCC, Dubai